In the crowded cannabis retail space, dispensaries need effective marketing solutions to increase customer retention and build brand loyalty.
The most effective way for any new business, including a marijuana dispensary, to do this is by implementing a loyalty program.
Customers enroll in loyalty programs by exchanging phone numbers for access to exclusive deals and discounts.
When a customer makes a purchase they are rewarded with one point for every dollar they spend. As points accumulate, customers shop in-store more often and spend more money using their points. By offering these discounts and other incentives you effectively show cannabis customers that their loyalty is valued.
To thrive in the current climate, dispensaries need to build customer loyalty not only with a great product but with a great experience as well.
One of the most effective ways to do this is by introducing rewards programs. An effective dispensary loyalty program is a time-tested way to increase customer retention and generate revenue.
In this post, you’ll learn why they work, how they differ in the cannabis industry compared to traditional retail stores, and how to structure your own rewards program for success.
Loyalty programs work because of what’s known as the “Pareto Principle”—aka the 80/20 rule. It says that 20% of your customers account for 80% of revenue, and customer acquisition can cost as much as 7x more than customer retention.
Because of this principle, dispensary owners must focus on turning existing customers into repeat customers.
A dispensary’s loyalty program is not supposed to please all customers. They are supposed to build relationships between you and your best customers by explicitly treating them like VIPs using a rewards account.
Keeping these main revenue drivers happy and coming back is a recipe for success. Not only do loyal customers visit more often, but they purchase a wider range of products and more of them. So don’t worry that curating your operation towards a select few will result in a narrow section of inventory being sold.
The Pareto Principle is a large reason why we focus so much on long term loyalty. We ran the numbers on 10 of our biggest clients in the most competitive states and here’s what we found.
We can see how active loyalty members are the most valuable customers in your store. So, how should you structure your loyalty program to gain a more active and loyal customer base? Even though non-loyal customers’ average transaction size is higher initially, over time they reduce drastically as loyal customers begin to become the majority of total sales.
A marijuana dispensary will encounter strict and often complicated regulations on how and where they can advertise. Most traditional forms of marketing, even on social media, are prohibited or severely limited, so retaining your most loyal customers once they’ve entered your store for the first time is vital.
Traditional retailers are not nearly as restricted in their marketing content and they still use loyalty programs. For example, Starbucks and Adidas both have comprehensive loyalty programs in place. This is a good indicator of just how important they can be for a successful business.
While it is true that loyalty marketing for the cannabis industry is more restricted than in others, in the primary markets like California, Washington, Nevada, and Colorado it’s almost unrestricted.
Restrictions on cannabis loyalty programs in certain markets are due to privacy laws that prohibit dispensary CRM systems and POS software from saving customer contact information for email and SMS marketing purposes. For example, in Oregon, personal contact information must be deleted after 48 hours. This obviously poses a problem for CRM and loyalty programs because it severely limits your ability to communicate with customers.
However, springbig has solved this problem with the implementation of a dedicated electronic signature (e-sig) application that enables customers to easily opt-in to having their data stored, allowing the dispensary to keep their contact info and remain compliant with all marketing regulations.
Now that you understand some of the logistics and restrictions, let’s talk about how to structure a loyalty program for cannabis retail.
(for more information on ‘inducement’ regulations specific to Canada check this article)
Not all forms of loyalty rewards programs are the right fit for every store, and choosing the wrong one can be toxic to your ROI. There is a common misconception that visits-based loyalty seen at places like coffee shops is the right choice. The idea is that a loyalty program is supposed to operate on a dollar-per-purchase model, so you should reward customers based on customer visits using a simple punch-card system.
But unlike a coffee shop where pretty much everyone is buying a drink within the range of $2-5, cannabis dispensaries have a vast array of products and a wide range of shopping habits (not everyone wants a pre roll). Cannabis customers enjoy the browsing experience and the ability to see multiple products. One-time Shoppers won’t become repeat customers if your cannabis marketing content is not relevant to them.
If you are distributing reward points to your customers by the visit instead of per dollar spent, there will be no way to accurately correlate the ratio of one point to one dollar spent. For example, if a customer earns 50 loyalty points for each purchase they make at your shop, on any given visit, one customer can spend $20 while another can spend $100.
Because of this, rewarding customers based on dollars spent is the most effective for cannabis dispensaries because it proportionately rewards your VIP customers. Remember, the top 20% of program members account for 80% of sales, so taking care of your VIPs is one of the most important parts of a customer loyalty program.
However, this isn’t to say that you should completely ignore everyone else. You still want to entice new people to enroll in your cannabis loyalty program even if they aren’t currently a VIP.
One way to do this is by implementing a tiered program. Spend-based tiers, for example, will still incentivize lower-spending customers but create strong incentives to earn more points in order to reach the highest tier.
Turn customers into influencers by giving them reward points for referring their friends, family, and followers to enroll in your dispensary loyalty program using a referral program like Budz
Simply starting a rewards program at your dispensary does not guarantee cannabis consumers will actually use it. According to customer data analyzed by Headset, “almost 40% sign up only for one initial transaction and never return.” Since the primary purpose of a loyalty program is to increase retention and average spend, this problem must be addressed.
This drop-off in participation occurs because of a bad customer experience. It only works if customers are kept informed of the latest special deals and earn special incentives that optimize their shopping and program experience.
The solution is to extend the loyalty rewards outside of the confines of your physical store experience. Don’t let customers enter the loyalty program only to forget about it immediately after their purchase. By maintaining contact with members through text-based loyalty and email marketing, you not only remind customers about the loyalty program but show that you actually value them as loyalty program members.
This can be easily accomplished with springbig automation features from basic functionalities like points balance alerts after purchase and daily deals, to being able to predict when future purchases will occur and send exclusive deals and discounts right before.
Not only is text messaging a great way to stay on the minds of customers and create brand loyalty but it is also most customers’ preferred channel of communication to be notified of exclusive discounts.
Text-based loyalty also removes all of the frustrating experiences commonly seen in other App based loyalty. Springbig is built specifically for cannabis retail, offering a completely frictionless system that does not require new members to create a password and account to earn points. All that is needed is a phone number when the customer makes the decision to enroll! The rewards points are sent directly to their phone. If customers don’t want to give their phone numbers, don’t worry. Springbig also has email marketing engine, so just get their email address and sync your email campaigns with our SMS engine.
Dispensary loyalty programs that offer insights into how your customers respond to your rewards and discounts will allow you to craft personalized and relevant content in your marketing campaigns.
Through full transactional integration between your POS (point-of-sale) and cannabis CRM providers, you can combine data streams to give you the most accurate picture of your customer’s individual shopping behaviors and product preferences and segment them based on key parameters.
Running a successful loyalty rewards program is a surefire way to increase customer retention and maximize revenue at your cannabis business. When combined with text marketing capabilities and integrated with your POS, crafting custom, and targeted promotional campaigns based on insights into your inventory performance becomes as simple as a few clicks.
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Wanna get some more detailed tips on running a cannabis loyalty program? Check out this article for some top tips!